Tax on Services?

Tax on Services?

If you think about it, much of your daily life already involves paying taxes to the state government. Whether earning income or eating out or buying gas or shopping online — you pay taxes in one form or another to the state. In fact, California has the highest state sales tax rate and the third highest cumulative tax burden in the nation, according to the nonpartisan Tax Foundation.

Now, Sacramento politicians are scheming to reach even deeper into our pockets. Under the guise of “modernization,” State Sen. Bob Hertzberg has proposed Senate Bill 8 to expand the 7.5 percent state sales tax to services. The list of productive activities that would fall victim to this services tax is staggering: agriculture, construction, auto repair, plumbing, legal and accounting services, Internet usage, even yoga and Pilates classes. Taking classes at the gym, hiring a plumber, getting your car fixed, or talking to an accountant — would cost you almost 8 percent more overnight.

Make no mistake: This tax scheme would be disastrous for our fragile economic recovery. The increased costs to the consumer would be a dagger to the heart of the middle and working-class family budgets. This is not the time to take nearly 8 percent more from family budgets when we are still recovering from the Great Recession. This is particularly true in a community like ours, where many of us either own or work at small businesses that would bear the brunt of a services tax.

And given Sacramento’s record of being less than forthright, taxpayers should be skeptical of grand tax schemes. Remember the gas tax increase that was supposed to go to infrastructure? Or the “temporary” Proposition 30 increase in 2012, which some politicians are already scheming to make permanent? SB 8 is a similar bait and switch. It is billed as “tax modernization,” but it would increase taxes overall by $10 billion a year, one of the largest increases in California history.

A rational tax system seeks to minimize taxation on productive activity such as providing useful services, in favor of taxing activity that imposes external costs. Taxing services does exactly the opposite.

Fortunately, we have some examples from which to learn. Several states enacted a services tax and then quickly repealed it when it proved economically harmful and unpopular — including Florida (1987), Massachusetts (1990), Michigan (2007) and Maryland (2007). California should take heed. Consumers, businesses and families should collectively say “no thanks” to Sacramento’s latest tax scheme.